US should act on Yuan in 2009

The Straits Times
Nov 21, 2008 | 9:06 AM
US should act on Yuan in 2009
US panel urges action on China currency, investing.

WASHINGTON - CONGRESS should pass legislation next year to pressure China to raise the value of its currency and require Beijing's US$200 billion (S$305.9 billion) sovereign wealth fund to disclose investments it is making in the United States, a US panel said on Thursday in its annual report.

'As a direct result of its currency manipulation and the capital controls which China employs, the People's Bank of China now has the largest hoard of foreign currency reserves in the world: nearly US$2 trillion,' Mr Larry Wortzel, chairman of the US-China Economic and Security Review Commission, said in prepared remarks.

'Rather than use this money for the benefit of its citizens - by funding pensions and erecting hospitals and schools, for example - China has been using the funds to seek political and economic influence over other nations,' Mr Wortzel said.

The clearest case of this was in January 2008, 'when a Chinese government agency promised to purchase Costa Rican government bonds in return for Costa Rica's severing of diplomatic ties with Taiwan,' the report said.

While other sovereign wealth funds have existed for nearly 50 years without controversy, 'China appears far less likely than other nations to manage its sovereign wealth funds without regard to political influence that it can gain by offering such sizable investments,' the report said.

----Expanding bounds of sovereignty

The report warned that China has an active cyber espionage program. Its capability is so advanced that it can engage in cyber warfare that United States may be unable to counteract or even detect, the report said.

The panel also urged Congress to direct the State Department and Pentagon to examine China's attempt to re-interpret international laws and treaties to expand the bounds of its sovereignty.

'Some Chinese scholars are advancing the notion that its territorial sovereignty should extend into outer space, not merely within its atmospheric airspace, as is currently the accepted practice,' Ms Carolyn Bartholomew, vice-chairman of the panel said in prepared remarks.

Congress created the panel in 2000 to shine a spotlight on problems in the US-China relationship. Its recommendations come as US President-elect Barack Obama is preparing to take office on Jan 20 after promising to increase pressure on China to abide by international trade rules.

---Price advantage

US manufacturers complain that China's currency, which is known as the yuan and the renminbi (RMB), is undervalued by as much as 40 per cent, giving Chinese a huge price advantage in international trade.

The currency has risen more than 18.5 per cent against the dollar since July 2005. But the rate of appreciation has slowed recently and 'there are some indications this may be due to the Chinese government's fear that a strong RMB will damage China's exports', the report said.

Congress also should press Mr Obama to bring more cases against China at the World Trade Organisation and to use the full range of US trade remedy laws against unfair Chinese trade practices, something the Bush administration has been reluctant to do, Ms Bartholomew said.

'Part of this reluctance has been due, frankly, to worries by the US business community that if they complain too loudly, the Chinese authorities will cancel the many subsidies that are offered to foreign investors in China,' she said. -- REUTERS